“One Big Beautiful Bill” at Year-End: Tax Considerations

By Helen Stephens, CFP®, EA

As we move farther into the last quarter of 2025, it’s time to finalize year-end tax planning. Especially this year, with the changes brought about by the passage of the One Big Beautiful Bill Act (OBBBA) this past summer, there are some opportunities that need to be utilized before the end of the year, and other changes that extend tax advantages that would have otherwise expired on December 31.  

Last Chances for Tax Breaks?

First, let’s mention some potential tax breaks that will be disappearing at the end of the year. For those who are still interested in obtaining a residential clean energy tax credit (for the installation of solar panels, battery storage systems, geothermal heat pumps, wind turbines, and other such items), action needs to be taken before the end of the year, after which the credits are no longer available. Qualified expenses allow taxpayers a tax credit of 30% of the total cost of equipment and installation. Similarly, the energy-efficient home improvement credit provides a credit of up to $3,200 for purchase of equipment and installation of energy-efficient windows, insulation, and similar items. But again, you’ve got to act before December 31, when this tax credit expires. Many will recall that credits for the purchase of new and used electric vehicles ended on September 30, and those who own or operate aircraft should remember that the sustainable aviation fuel credit of $1.25/gallon for purchases of certain fuel mixtures also goes away at the end of the year. 

Cautions on AMT

 For taxpayers subject to alternative minimum tax (AMT) considerations, OBBBA is a bit of a good news / bad news situation. The good news is that the new law makes the exemption-phaseout threshold and the higher exemption amounts codified by TCJA permanent. The less-good news is that OBBBA resets the 2026 exemption phaseout threshold to $500,000 for a single taxpayer (down from $626,350 in 2025) and $1 million for a married couple (down from $1,252,700 in 2025). It also raises the exemption-phaseout percentage from 25% to 50%. Taxpayers who are subject or potentially subject to AMT should consult carefully with their tax experts.  

New Opportunities for Tax Savings  

Perhaps at the top of the list for wealthier taxpayers is the elimination of the sunset provision on the much-higher estate and gift tax exemptions that went into effect with the Tax Cuts and Jobs Act (TCJA) of 2017. Under the TCJA, these exemptions were set to terminate at the end of 2025, but OBBBA makes the new, higher exemptions permanent. In 2025, the estate of a married couple is exempt from estate taxes up to a value of almost $28 million, and in 2026 the inflation-adjusted amount will be $30 million. 

 Of interest to many retired taxpayers is the temporary deductions  provided by OBBBA that effectively reduces the taxable income of many seniors.  Though it doesn’t repeal the tax on Social Security benefits outright, the combined effect of the new deductions is estimated to reduce the number of retirees who owe no taxes on their Social Security benefits from 64% to about 88%. Taxpayers age 65 and older can take a $6,000 deduction ($12,000 if both spouses filing jointly are 65+), phasing out at $75,000 in modified adjusted gross income (MAGI). Note that this deduction will terminate after 2028 in the absence of action from Congress.  

Taxpayers may be able to benefit from an increased cap on state and local tax (SALT) deductions; OBBBA raised the cap on such deductions from $10,000 to $40,000, with inflation-adjusted increases through 2029. The increased deductions begin phasing out for taxpayers with $500,000 or more in MAGI, reverting to the $10,000 cap at $600,000 MAGI.   

Parents and grandparents welcoming new arrivals to the family in 2025 may qualify to open a $5,000 tax-advantaged “Trump account” (much like an IRA) per child, and children born between 2025 and 2028 may qualify for a $1,000 “seed deposit” from the federal government. Intended for long-term saving, the accounts grow without taxation and deposits can be invested in a range of indexed mutual funds, including some exchange-traded funds (ETFs). Withdrawals can begin when the child reaches 18, but funds can also be left to grow tax-free for a longer period. Deposits are not tax-deductible, and withdrawals are treated as taxable income.  

Many small businesses may benefit from new, higher expensing and depreciation limits on capital purchases and research and development (R&D) costs. The law permits businesses to claim 100% of the cost of a qualifying capital asset in the year it is purchased, rather than spreading depreciation over the “useful life” of the asset. Similarly, 100% of domestic R&D expenses can be claimed as expenses in the year they are incurred.  

Small business owners should also take note of some late-breaking news from the IRS: in mid-September, the service released final guidance on how SECURE 2.0 will affect catch-up contributions to employer-sponsored plans like 401(k)s and 403(b)s. Starting in 2026, plans must offer Roth contributions to permit catch-up contributions from high earners. Many business owners fall into the “high earner” category, so adding a Roth option will be essential if they want the ability to make catch-up contributions. The regulation doesn’t formally take effect until 2027, but employers are still required to make a “good-faith effort” to comply.  

These are by no means all of the “new wrinkles” in the tax code brought about by OBBBA. Taxpayers are encouraged to consult with their taxation experts and financial advisors to ensure both compliance and tax efficiency. If you have questions, let us help you get the answers you need; please contact your Aspen advisor today!